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Raja Bahadur Mukundlal Bansilal Vs. Commissioner of Income Tax, Bombay City - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 40 of 1951
Judge
Reported in(1952)54BOMLR576; [1952]22ITR94(Bom)
ActsIncome Tax Act, 1922 - Sections 10(2)
AppellantRaja Bahadur Mukundlal Bansilal
RespondentCommissioner of Income Tax, Bombay City
Appellant AdvocateJamshedji Kanga, Adv.
Respondent AdvocateThe Solicitor-General
Excerpt:
indian income-tax act (xi of 1922), section 10 (2)(xi) - allowable deductions--writing off of bad debt or loan by assessee as irrecoverable--whether necessary for assessee to satisfy income-tax authorities that such debt or loan became irrecoverable in year of account.;in order to be entitled to a deduction under section 10(2)(xi) of the indian income-tax act, 1922, one of the conditions is the writing off of the bad debt or the loan which has become irrecoverable; but it is not sufficient. the assessee must satisfy the income-tax officer that in fact the debt or the loan became irrecoverable in the year of account. therefore it is open to an income-tax officer to disallow a claim under that section on the ground that the loan had become irrecoverable in a year of account earlier than..........words it is not left to the creditor's choice to determine when a particular debt became a bad debt or irrecoverable, nor is it left to the banker or money-lender to decide when a loan or part of it in his books. one of the conditions is the writing off the bad debt or the loan which has become irrecoverable; but it is not sufficient. the assessee must satisfy the income-tax officer that in fact the debt or the loan became irrecoverable in the year of account. now the tribunal has pointed guidance from us and they have referred to privy council case, viz., income-tax commissioner v. chitnavis. now that case itself furnishes sufficient guidance to the tribunal with regard to the matter in which they felt doubt, because when we turn to that case at page 297 their lordships point out as.....
Judgment:

Chagla, C.J.

1. This reference raises a question as to the interpretation of Section 10(2)(xi) of the Income-tax Act. We entirely agree with the Tribunal when it takes the view that this particular clause has not been very happily drafted. If anything, the Tribunal has used very moderate language in considering the wording used by the Legislature. But we have to construe it as we find it and when we turn to that clause it deals with a deduction under Section 10(2); and the deduction in case of a person who is doing business, and whose accounts are not kept on cash basis, is 'such sum in respect of bad and doubtful debts... as the Income-tax Officer may estimate to be irrecoverable, but not exceeding the amount actually written off as irrecoverable in the books of the assessee.' It is difficult to understand what distinction is sought to be made between bad and doubtful debts; but the difficulty and ambiguity is cleared by the fact that whether the debt is bad or doubtful it must in the estimate of the Income-tax Officer be irrecoverable. Therefore, in the case of persons doing business, and whose accounts are not kept on cash basis in order to be entitled to a deduction under Section 10(2)(xi) these conditions are necessary : the debt must be bad or doubtful debt; the Income-tax Officer must take the view that it is irrecoverable and further it must be written off in the books of the assessee. However, when a debt is written off in the books of the assessee the Income-tax Officer may take the view that although the assessee has written off the debt it became irrecoverable not in the accounting year but in an earlier year. If he takes that view then assessee would not be allowed to claim a deduction in the year of account. However, in the case of bankers and money-lenders what can be claimed as a deduction is a loan or part of a loan which may become irrecoverable in the opinion of the Income-tax Officer, and there, again, the banker or the money-lender has to write off the loan or the part of the loan and in his case also the mere fact that he chooses to write off the loan or part of it in a particular year does not necessarily mean that it had become irrecoverable in that particular year. In the other words it is not left to the creditor's choice to determine when a particular debt became a bad debt or irrecoverable, nor is it left to the banker or money-lender to decide when a loan or part of it in his books. One of the conditions is the writing off the bad debt or the loan which has become irrecoverable; but it is not sufficient. The assessee must satisfy the Income-tax Officer that in fact the debt or the loan became irrecoverable in the year of account. Now the Tribunal has pointed guidance from us and they have referred to Privy Council case, viz., Income-tax Commissioner v. Chitnavis. Now that case itself furnishes sufficient guidance to the Tribunal with regard to the matter in which they felt doubt, because when we turn to that case at page 297 their Lordships point out as follows :-

'It thus follows that a debt, which had in fact become a bad debt before the commencement of a particular year, could not properly be deducted in ascertaining the profits of that year, because the loss had not been sustained in that year.'

2. Their Lordships further observe :-

'Whether a debt is a bad debt, and if so, at what point of time it became a bad debt, are questions which, in their Lordships' view, are questions of fact, to be decided in the event of dispute by an appropriate tribunal, and not by the ipse dixit of anyone else.'

3. Now in the light of these observation let us look at the facts of this case. The assessee does not money-lending business and on the October 28, 1936, he agreed to advance to one Niranjan Prakash a sum not exceeding Rs. 40,000 for the completion of a motion picture 'Path of Glory'. Niranjan absconded in 1937 and the picture was got completed by the assessee. It was approved by the Board of Censors. The picture was not a success, and, therefore, on the April 16, 1941, the assessee entered into an agreement with one Garcher, who had to improve the picture and then exploit it. Under the agreement with Garcher certain amounts were received by the assessee. There were no receipts in S.Y. 1999, and, therefore, on the October 11, 1944, (S.Y. 2000) the assessee sold four positive prints of the picture for Rs. 850, and then wrote off the balance due to him from Niranjan. It is, therefore, with the S.Y. 2000 that we are concerned, as the assessee claims that the balance due to him from Niranjan had become an irrecoverable debt in the year. Now, a loan becomes irrecoverable pr or debt become a bad debt when the creditor has no reasonable expectation of reovering it from the debtor; or, as it has been put in some cases, when there is no ray of hope at all on which the creditor can rely for recovering the amount from his debtor that it can be said that the debt has become bad or a loan has become irrecoverable. But, if the correct principle is applied by the department then it must be a question of fact as to whether a debt has become a bad debt or not. Now unfortunately in this case the Tribunal has expressed an opinion that the loan had become 'practically irrecoverable' in S.Y. 1997 and in the question which has been submitted to us also the expression used is, 'Whether there was material on which the Tribunal could have come to the conclusion that the loan to Niranjan Prakash had become practically irrecoverable in S.Y. 1997, if not earlier ?' Now if the assessee claims, as he did, that the loan had become irrecoverable in S.Y. 2000 it is not sufficient for the Tribunal to hold that it become 'practically irrecoverable' S.Y. 1997 in order to deprive the assessee of his claim to deduction under Section 10(2)(xi). The Tribunal must be find as fact that the loan had become, not 'Practically irrecoverable' but 'irrecoverable' at a time prior to S.Y. 2000. The Solicitor-General says that there were materials before the Tribunal on which they could have come to that conclusion. It is pointed out that S.Y. 1996 the assessee had received only Rs. 26; there were no receipts in S.Y. 1997; in S.Y. 1998 only Rs. 206 were received; there were again no receipts in S.Y. 1999. It may be that on those facts the Tribunal could have come to the conclusion that the loan had become irrecoverable prior to S.Y. 2000. But unfortunately the Tribunal has not so found, and, therefore, the proper thing that we should do in this case is to send the matter back to them and ask them, in the light of this judgment, to find as to whether on the materials before them the loan had become irrecoverable prior to S.Y. 2000. If they come to that conclusion then the assessee would not entitled to a deduction under Section 10(2)(xi). If, on the other hand, they take a view that the loans became irrecoverable only in S.Y. 2000 and could not be said to be irrecoverable prior to that then the assessee would be entitled to a deduction under Section 10(2)(xi).

4. With regard to the first question submitted to us, viz., 'whether the monetary transaction of the assessee with Niranjan Prakash was loan made by the assessee to Niranjan Prakash in the course of his money-lending business,' the Tribunal had found as a fact that the assessee was a money-lender and what he was doing was advancing moneys on the security of the film. Here again the finding of the Tribunal is not very clearly expressed. They say : 'Regard being had to all circumstances, it is difficult to hold that the transaction entered in to by the assessee with Niranjan was an ordinary money-lending transaction. It is more like a business transaction. We are, however, prepared to agree with Mr. Sankara Narayan that it was a money-lending transaction.' With respect to the Tribunal, it is rather difficult to appreciate as to what exactly they desire the finding of fact should be. But on the whole we take the view that they have found as a fact that this transaction was a transaction in the course of money-lending business, which was being carried on by the assessee. Therefore, we must answer the first question in the affirmative. With regard to the second questions, viz., 'If the answer to the first question be in the affirmative whether on a true interpretation of Section 10(2)(xi) of the Indian Income-tax Act, it is open to an Income-tax Officer to disallow a claim under that section on ground that the loan had become irrecoverable in a year of account earlier than that in which it was written off', we should have thought that there was no doubt as to what the answer to this question should be, because as laid down by their Lordships of this Privy Council in Commissioner of Income-tax v. Chitnavis, it was for the Income-tax Officer to determine when the loan became irrecoverable. Therefore, the answer to that question would be in the affirmative. We do not answer the question but we have remanded the matter as pointed out in our judgment. There will be no order as to costs.


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